Anchoring

Anchoring is a cognitive bias where a trader fixates on an initial piece of information, such as a past price level, a news headline, or an analyst's forecast. This initial data point, the "anchor," then disproportionately influences subsequent judgments and decisions. Even if new, more relevant information becomes available, the anchor can prevent an objective re-evaluation of market conditions. This bias affects how traders perceive value and future price movements.

For a retail trader, anchoring can lead to holding losing positions too long, expecting a return to a specific historical price, or missing new opportunities. For example, if a trader bought EUR/USD at 1.1000 and it drops to 1.0800, anchoring might lead them to believe 1.1000 is still the "true" value, delaying a necessary stop-loss. This bias increases risk by hindering adaptation to current market realities, potentially resulting in larger drawdowns and missed profits.